Why Study Money, Banking, and Financial Markets?

[Pages:23]Chapter 1

Why Study Money, Banking, and Financial Markets?

Why Study Money, Banking, and Financial Markets

? To examine how financial markets such as bond, stock and foreign exchange markets work

? To examine how financial institutions such as banks and insurance companies work

? To examine the role of money in the economy

Copyright ? 2007 Pearson Addison-Wesley. All rights reserved.

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Financial Markets

? Markets in which funds are transferred from people who have an excess of available funds to people who have a shortage of funds

Copyright ? 2007 Pearson Addison-Wesley. All rights reserved.

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The Bond Market and Interest Rates

? A security (financial instrument) is a claim on the issuer's future income or assets

? A bond is a debt security that promises to make payments periodically for a specified period of time

? An interest rate is the cost of borrowing or the price paid for the rental of funds

Copyright ? 2007 Pearson Addison-Wesley. All rights reserved.

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Copyright ? 2007 Pearson Addison-Wesley. All rights reserved.

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The Stock Market

? Common stock represents a share of ownership in a corporation

? A share of stock is a claim on the earnings and assets of the corporation

Copyright ? 2007 Pearson Addison-Wesley. All rights reserved.

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Copyright ? 2007 Pearson Addison-Wesley. All rights reserved.

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The Foreign Exchange Market

? The foreign exchange market is where funds are converted from one currency into another

? The foreign exchange rate is the price of one currency in terms of another currency

? The foreign exchange market determines the foreign exchange rate

Copyright ? 2007 Pearson Addison-Wesley. All rights reserved.

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